Best Saving Bond

A savings option with a guaranteed, tax effective, return can help you meet your longer term financial goals and offer you the security which can be missing from other savings products. Australian Government Bonds, and savings bonds issued by banks offer variable investment options which could meet your savings needs now and into the future.

What is a Saving Bond?

In the UK, savings bond is the name which their term deposit products are known as, and they offer the same security of depositing your savings with your bank in a fixed account at a fixed interest rate. In the US saving bonds are issued by the government, and were first used during World War I when the US Government had no way to gain financing from other countries, and so turned to its citizens. American citizens had the opportunity to purchase Liberty bonds which began to mature after the war and could then be refinanced.

In US saving bonds continued to develop as a safe way to save for retirement and the Series EE savings bond became popular. These bonds are issued for half their face value and mature over tie, usually thirty years. The best returns on EE bonds are made when they are held until maturity, and bonds issued in the US after 2005 have a fixed rate of interest.

From 1976 to 1987 the Australian Government also sold saving bonds aimed at smaller retail investors and had a maximum maturity term of seven and a half years. During this time the government was running large deficits in its budget and so aimed their savings bonds at smaller investors and these products often paid a higher rate of interest compared to that offered to larger investors. Investors with Australian Government saving bonds could access their investment at a month’s notice and without penalty after a minimum holding period had passed.

Australian Government Bonds

The Australian Government continues to offer bonds to investors with medium to long term savings goals. The features of current Australian Government bonds include:

• The interest and the principal are government guaranteed. While your deposits in savings accounts and term deposits are covered by a government guarantee until October 2011, government bonds are always backed by the government. This means your interest returns and your principal investment are guaranteed to be available for you, by the Australian Government.
• Aimed at larger investors. Government bonds are predominantly sold initially to big institutional investors such as superannuation funds but there are also secondary market, including the stock exchange, where government bonds can be bought and sold in smaller amounts.
• Competitive interest rates. Government bonds often offer interest rates comparable to or higher than Australian term deposit accounts with similar choices in terms and investment amounts. Government bonds can also be more liquid than a fixed term deposit account with a bank.
• To sell a government bond early you are reducing its value. If you purchase a 10 year government bond, if you need to sell that bond before the end of the term, you need to keep in mind that the prices of government bonds will move inversely with market interest rates. For example, if market interest rates have increased due to inflation after you purchased your 10 year government bond, you would have to reduce the price to less than what you paid for it, in order to offer an interest rate equivalent to those available elsewhere in the market.

Features of AU Bank Savings Bonds

A number of Australian banks will offer savings bonds as another investment alternative and these can be very tax effective and offer secure returns on your savings. A savings bond issued by an Australian bank:

• Is fee free to open and use. There are no fees associated with opening or using the best saving bonds, ensuring your investment remains profitable.
• Investment savings bonds can be a tax paid investment vehicle. The best saving bonds will guarantee you a maximum tax rate of 30% so you don’t have to watch all of your returns be eaten away by tax obligations at the end of the financial year either.
• Bank savings bonds invest in managed funds. When you purchase a savings bond product with your bank, you will be investing in their managed funds and investment portfolios to grow your savings. You will also often have the opportunity to manage where your savings are invested, and switch between investment and fund options within your bank.
• Offers flexible ownership options. When opening a savings bond with your bank you can choose a single ownership, joint ownership, or open the investment as a trust, on behalf of a charity, partnership or company.
• The best saving bond will not charge entry fees. Entry fees are charged on superannuation and investment funds when you, or someone on your behalf, makes a contribution. These fees can be as much as 5% of each contribution, so you are often being charged before your money has even had a chance to be invested. However, the best savings bonds will not chare you any ongoing or entry fees on your savings and investments.

To find out more about the best savings bonds offered by Australian banks, or the Australian Government, view our comparison tables here. You can also follow our secure links to each provider’s website for more information, or to start an online application.